Corporations like Google and Cisco and spending a increased amount of their cash reserves on start-ups in the US and abroad. Moreoever, in contrast to the corporate VC activity of the late 1990s, they are taking a longer-term view:
Intel has restructured its fund to emphasize financial returns and is investing in follow-up rounds in its portfolio companies—something it didn’t do before. “There’s no strategic value unless each individual investment is successful,” says Intel Capital President Arvind Sodhani. “A bankrupt company is not very strategically valuable to Intel—or to anybody for that matter.”
Read the rest.
Perhaps in response to my post on the increased cost of IPOs and the advent of new markets to go public, Wednesday had 5 successful IPOs. VentureBeat reports that comScore, Data Domain, Spreadtrum Communications, Spectra Energy Partners and AuthenTec each had significant first day returns. Is this a signal of the top of the market?
The IPO is the preferred exit choice of most venture capitalists and entrepreneurs. Sarbanes-Oxley has made going public extremely expensive and thus increased the performance/return hurdle for IPOs. Leave it to the market to adapt:
Public or private? This question vexes chief executives more than any other these days. But does the choice have to be so black-and-white? For those not convinced that it does, a new breed of private exchange is gaining popularity where shares are not sold in public offerings but instead are placed with large investors, who are free to trade them later in the secondary market.
Banks and exchange operators alike are taking an interest in creating such hybrid marketplaces. Goldman Sachs recently launched an electronic market called GSTrUE (Tradable Unregistered Equity), selling 15% of Oaktree Capital Management for $880m, much of it to a cluster of hedge funds. Other Wall Street giants, including Merrill Lynch and Morgan Stanley, are developing similar platforms.
Rather than selling to the general public, these new “hybrid” public offerings — 144a securities — are available to large, accredited investors. Prices are likely lower than standard IPOs, but once costs are accounted for, many VCs might be better off with this route. Also,
This stability is one attraction for issuers. Another is the possibility of raising capital while avoiding the less desirable trappings of full public ownership, such as class-action litigation, compliance with the Sarbanes-Oxley law on corporate governance, and pressure to make the quarterly numbers. One reason Oaktree opted for GSTrUE was that it did not want to be forced to show steady growth when its business is inherently volatile. Other alternative money managers are considering similar moves, as are some family-owned firms that need capital but fear becoming the targets of activists. The trend may also benefit private-equity and venture-capital funds, since it should make it easier for them to cash out of companies that are not yet ready to enter, or return to, fully public markets.
I pretty much quoted it all, but read the rest.
